Grist for the Mill

It’s only a matter of time before Technology giants begin to reach into public schools in an effort to identify and recruit top-tier talent in an Intellectual Capital-driven global economy.

Technology’s Four Horsemen – Alphabet, Apple, Amazon and Facebook – hired 247,714 net new employees in 2017, up 89% from the previous year’s figure of 131,196. Amazon alone accounted for 91% of 2017’s total and 84% of 2016’s total (this makes sense given the nature of Amazon’s retail-centric, distribution-heavy business model).

Technology companies require an enormous amount of human capital and brainpower. This is especially true of large technology companies that work to define new market opportunities and use cases. Waiting for the U.S. K-12 public education and university systems to produce inadequately trained professionals is both a suboptimal outcome and supply chain bottleneck. Therefore, we expect for companies such as the Four Horsemen to become increasingly aggressive and systematic in their approach to training and recruiting young people.

We have experienced early green shoots of this phenomenon with Peter Thiel’s“Thiel Fellowship”a foundation that awards $100,000 grants to high potential young people. Those accepted (104 fellows and alumni, 2,800 application last year), to the two-year program learn how to write code and build companies. Young people skip or step out of college to become Thiel Fellows where in addition to grant proceeds, Fellows receive support from the foundation’s network of entrepreneurs, investors and operators.

Another example comes from my personal experience in China 2006-2011 where a number of the large China-based IT Services companies set up company-owned “universities” to train recent college graduates in an effort to better prepare them for the type of work that they would perform on behalf of clients. My view is that these companies will reach further back into the student supply chain and begin to recruit and train students during their junior high and high school years.

Reduce Time-to-Productivity

A misconception that many have is that an engineer fresh out of college can hit the ground running at optimal efficiency and drive massive value for companies. That’s hardly the case. Universities do a poor job of preparing students for life in the real world. It makes enormous sense for companies to actively invest in the U.S educational system both at the K-12 and university levels. Short-term operating profit margin dilution will pay dividends over the long-term in the form of new differentiated products and services. To ensure a worthwhile outcome it is paramount that companies take a systematic approach to execution. If nothing else Alphabet, Amazon, Apple and Facebook excel in measuring outcomes and re-calibrating where necessary.

No Teachers Required

Given what we have posited it would make sense for the Four Horsemen and others to get involved in public education early in students’ academic careers. Further, it would be logical for companies to seek to influence the academic experience as much as is necessary to maximize the probability of optimal outcomes for both students and companies. Therefore, it is not unreasonable to expect that the Four Horsemen and a few select others will eventually shape student curriculum — particularly in Math and Science. This may range from content creation to teaching methodologies to the act of teaching itself. Teachers’ Unions ought to be concerned. From a technology standpoint it would not be difficult to replace public school teachers nor college professors with machine learning platforms wrapped in friendly AI skins.AmazonGo is already doing this with retail checkout lines. It’s less a question of “how?” and more a question of public will.

Chronicle vs. AWS

One of Alphabet’s Moonshot projects was released into the world last week. The company is named Chronicle – read more about it here. In short, Chronicle is a CyberSecurity company whose value proposition is to sell its machine learning-driven offering to large enterprises. We believe this could be a difficult sale for reasons articulated in our recent podcast episode.

Meanwhile, Amazon’s AWS unit is the company that’s best positioned to deliver a CyberSecurity offering to the market at scale. Why? Many companies are built on top of AWS (start-ups like CEORater to Netflix) – thus AWS already has the installed customer base. The heavy lifting is done. Offering new turnkey services to the installed customer base is substantially easier than winning new customers.

It would seem to us that Alphabet (tkr: GOOG) has a greater probability of bringing a functioning autonomous ride-hailing service to market at scale via its Waymo unit more quickly than Uber or Lyft given the strength of Alphabet’s balance sheet. We cover Uber – although primarily from a corporate governance standpoint – in multiple episodes of the CEORater Podcast, which you may access via Apple Podcasts and SoundCloud amongst other platforms. Here’s Ep. 62:

Embedded voice-based intelligence/AI within the automobile – one more reason for Apple, Amazon, Google/Alphabet and Microsoft to insert/expand their footprint within the auto sector. Vehicles are feature-rich and lend themselves well to voice-based commands/ AIs. Each of Apple, Amazon, Google and Microsoft could readily (and in some cases do) open their respective AI platforms to auto OEMs for the purpose of embedding AI technology within the vehicle. The more strategic question however is whether “success” in this space necessitates that AAPL, AMZN, GOOG and MSFT own automobile operations. Google (via Waymo) and Apple are pushing forward. Will Amazon and Microsoft seek to “own” manufacturing in an effort to increase learnings in the auto sector? Other than autonomous vehicles, what will be the practical global reality 25-50 years forward regarding automobile ownership? Will today’s 20-somethings largely be ridesharers in 2050, or, will they own modular vehicles that may be customized like a mobile phone? The latter scenario would likely prove to be profitable for the automotive aftermarket sector to a degree it has yet to enjoy. Regardless of the practical reality AI will be deeply embedded in vehicles.